When you’re growing a business, one of the most pressing concerns that owners report is around retaining and attracting great talent. A surefire way to surpass this worry? By offering great benefits that your employees want and need. For many, planning for retirement is a priority, and by offering a 401(k) (one of the most sought-after benefits) you demonstrate your investment in your team’s future. Only half of American families have any retirement savings, but those who do opt in to a 401(k) are more likely to be happy at work than those without access to the tax advantages of a 401(k) plan.
As an owner, you’ll be able to set aside more tax-deferred savings for yourself. And, the earlier you and your employees start saving, the better off you’ll all be as shown in the diagram below. An employee who starts saving for retirement 10 years earlier may have twice as much in savings by the time they’re done working – check it out:
The graph above is provided for informational purposes only. This projection is hypothetical in nature and intended to be illustrative. Accordingly, such information is not intended to constitute investment advice nor an assurance or guarantee of future performance. Past performance does not guarantee future results. Investing involves risk and investment may lose value. Investments are not FDIC insured.
A 401(k) is a win-win-win for businesses, but, offering one also means taking on some new responsibilities. In this post, we’ll dive into the trickier aspects of setting up a savings program, and how a special kind of plan called a Safe Harbor 401(k) can reduce your risk and make things easier down the road.
To take a step back, the goal of 401(k) plans is to prepare more Americans for retirement. Regardless of income or salary, the government wants to make sure that everyone has an equal opportunity to set aside finances for later in life.
To ensure universal accessibility, the IRS has set up a series of “nondiscrimination” tests that are designed to measure whether a 401(k) plan favors highly compensated employees over the rank and file. They’re most commonly referred to as the ADP, ACP, and top-heavy tests. If your plan were to fail one of these assessments, it could mean making expensive corrections, a lot of administrative work, and potentially being required to refund employees’ 401(k) contributions.
To learn more about the nondiscrimination tests, our 401(k) partner Guideline has fleshed out the details here.
A Safe Harbor 401(k) lets your company’s plan skip past nondiscrimination testing under the following conditions:
Does opting into this sort of plan sound ideal for your business? Here’s what you need to know:
The main requirement for a Safe Harbor 401(k) is that the employer must make contributions to their employees’ 401(k) accounts, and those contributions must vest immediately. What this means is that when an employee makes a contribution, the employer must match that percentage amount up to a certain value. Or, you can set up a Safe Harbor plan where the employer makes a contribution even if the employee doesn’t.
Here are what the minimum contributions look like under the three different plan types:
When it comes to implementing a new Safe Harbor 401(k) plan for 2017, September 1st is the key date to keep in mind. Employees must receive notice 30 days before the plan starts, and initial coordination can take a few days. So, if you’re considering a Safe Harbor plan, time is of the essence!
In general, Safe Harbor 401(k) plans are a good choice for companies that fit into any of these categories:
So, you’re probably thinking that offering a Safe Harbor 401(k) plan seems like a pretty clear no brainer. In most cases, it is! The biggest downside for businesses is that the contributions your company makes can increase your overall payroll by 3% or more. However, the upside includes happier employees, significant tax savings, certainty that your plan won’t fail, and more retirement savings for everyone.
This post is an excerpt of our 401(k) partner Guideline’s guide to offering a Safe Harbor 401(k) plan. To learn about integrating a 401(k) program into your current Zenefits dashboard, visit Zenefits today to learn how to get started!